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Philly Fed researchers publish paper on the Gold Standard

Long-run price stability could be a key feature of the gold standard, researchers with the Federal Reserve Bank of Philadelphia find.

In their working paper, published in February, Jesús Fernández-Villaverde and Daniel Sanches explore how the gold standard would operate as a monetary framework in a hypothetical small open economy ...

https://www.centralbanking.com/central-banks/monetary-policy/7961027/switch-to-gold-standard-could-stabilise-prices-philadelphia-fed-research

Here's the paper:

We present a micro-founded monetary model of a small open economy to examine the behavior of money, prices, and output under the gold standard. In particular, we formally analyze Hume’s celebrated price-specie flow mechanism. Our framework incorporates the influence of international trade on the money supply in the Home country through gold flows. In the short run, a positive correlation exists between the quantity of money and the price level. Additionally, we demonstrate that money is non-neutral during the transition to the steady state, which has implications for welfare. While the gold standard exposes the Home country to short-term fluctuations in money, prices, and output caused by external shocks, it ensures long-term price stability as the quantity of money and prices only temporarily deviate from their steady-state levels. We discuss the importance of policy coordination for achieving efficiency under the gold standard and consider the role of fiat money in this environment. We also develop a version of the model with two large economies.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4744246

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Comments

  • cohodkcohodk Posts: 18,615 ✭✭✭✭✭

    Everything works great in hypotheticals.

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

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